2.1 Causes of Loss / Named-Peril vs. Open-Peril

Causes of Loss: The Engine of Every Property Claim

Property insurance pays for direct physical loss to covered property caused by a covered peril. On the licensing exam, almost every property question reduces to one chain: identify the peril, confirm it triggers coverage, then check the exclusions. The phrase cause of loss is the industry term for the peril, and ISO packages perils into three commercial coverage forms — the Basic Form (CP 10 10), the Broad Form (CP 10 20), and the Special Form (CP 10 30). The Special Form is the broadest because it is written on an open-peril basis.

Peril, Hazard, and Exclusion

A peril is the cause of loss (fire, wind, theft). A hazard is a condition that increases the chance or size of a loss. An exclusion is a peril or situation the policy carves out. The exam tests three hazard types, and you must keep moral and morale separate.

The single-letter difference matters: moral = dishonest intent, morale = careless attitude. Examiners deliberately put both wrong answers in the same question.

Named-Peril vs. Open-Peril Coverage

This distinction controls two things: what is covered and who must prove what.

Named-Peril (Basic and Broad Forms)

A named-peril policy covers only the perils specifically listed in the form. The insured carries the burden of proof — the policyholder must establish that the loss arose from a listed peril. If the cause is unproven or ambiguous, the claim fails.

The ISO Basic Form covers a core list often memorized as "FLEEWVASH-V": Fire, Lightning, Explosion, smoke, Windstorm/hail, Vehicles, Aircraft, riot/civil commotion, Vandalism, Sprinkler leakage, sinkhole collapse, and Volcanic action. The Broad Form adds: breakage of building glass; falling objects; weight of ice, snow, or sleet; and water damage from accidental discharge or leakage.

Open-Peril (Special Form / "All-Risk")

An open-peril policy covers all direct physical loss EXCEPT the causes specifically excluded. The phrase all-risk is informal; modern forms say special form or open perils. The critical reversal: under open peril, the insurer carries the burden of proof — to deny a claim the carrier must show the loss falls within a stated exclusion.

Standard open-peril exclusions you must recognize:

• Flood (surface water, rising water) — never covered without a separate flood policy (NFIP or private)
• Earthquake and earth movement — requires a separate endorsement/policy
• War, nuclear hazard, government action (seizure/confiscation)
• Wear and tear, deterioration, inherent vice, and gradual deterioration (maintenance items)
• Ordinance or law (cost to rebuild to current codes) unless endorsed
• Intentional acts of the insured

These seven categories appear on virtually every property exam as the answer to "which is excluded?"

Coverage Trigger and the "Concurrent Causation" Trap

A loss is covered only if a covered peril is the cause. When an excluded peril and a covered peril combine, the anti-concurrent causation language in modern ISO forms says: if an excluded peril (e.g., flood) contributes to the loss in any sequence, the loss is excluded — even if a covered peril (e.g., wind) also contributed. This is why a homeowner whose property is destroyed by storm surge after a hurricane recovers nothing under a standard HO-3: the water/flood exclusion defeats the wind coverage.

Direct vs. Indirect Loss

The cause of loss also drives whether you are dealing with a direct or indirect (consequential) loss. A direct loss is the immediate physical damage from the peril — the fire that burns the building. An indirect loss is the financial consequence that follows — the lost rents or business income while the building is rebuilt. Standard property forms cover direct loss; business income and extra expense coverage (ISO CP 00 30 / CP 00 32) must be added for indirect loss.

When an exam stem describes a restaurant that burns and then loses $50,000 of profit during repairs, the burned building is the direct loss and the lost profit is the indirect loss requiring separate coverage.

Reading a Loss Question on the Exam

Work every property-loss question in the same fixed order, because the test writers build the wrong answers around shortcuts:

1. Identify the peril — what actually caused the damage?
2. Match it to the form — is this a named-peril form (must be listed) or open-peril (covered unless excluded)?
3. Check exclusions — flood, earthquake, war, nuclear, wear-and-tear, ordinance, intentional acts.
4. Apply anti-concurrent causation — if any excluded peril contributed, the loss is out.
5. Confirm it is direct, not indirect — lost income needs separate coverage.

Following this sequence prevents the most common error: assuming coverage exists simply because a recognizable peril (like a hurricane) was involved, when the actual damaging force (flood) is excluded.